Curbing fuel smuggling within the UAE

ABU Dhabi National Oil Co (Adnoc) has announced a plan to revive measures it adopted three years ago to curb the smuggling of diesel fuel within the UAE.

ABU Dhabi National Oil Co (Adnoc) has announced a plan to revive measures it adopted three years ago to curb the smuggling of diesel fuel within the UAE.

The state-owned oil and gas company said it would ration diesel supplies by requiring the fuel to be purchased with a pre-paid card. This time, the rationing will apply to the operators of diesel generators and heavy equipment, as well as to truck drivers, who were the main target of the 2008 anti-smuggling campaign.

Its fuel marketing arm Adnoc Distribution invited contractors, construction company owners and other customers requiring diesel fuel for electricity generators and heavy machinery to supply documentation of their fuel requirements. The company said it had previously collaborated with relevant authorities on studies to determine “appropriate” daily and monthly fuel consumption for various classes of diesel-powered vehicles. Adnoc customers will be allowed to purchase diesel only up to the limits determined by their pre-paid cards. They will not be allowed to recharge the cards beyond those limits.

Fuel stations operated by Adnoc Distribution, located in Abu Dhabi and several small emirates in the north of the UAE, charge lower prices for diesel than the pump prices prevailing in the emirate of Dubai. The fuel stations in that emirate, which borders Abu Dhabi, are operated by the Dubai government-owned Emirates National Oil Company (Enoc). As a result of large price differences that surfaced in 2008, it quickly became commonplace for operators of vehicles registered in Dubai to cross the border into Abu Dhabi or one of the northern emirates to fill up their vehicles at Adnoc stations.

The company introduced its “Rahal” pre-paid diesel card system in August of that year to curb the practice, which it described as “smuggling”. Large differentials between diesel prices in Abu Dhabi and Dubai again became a problem in late 2010 as Dubai raised pump prices faster than Abu Dhabi in response to rising international oil prices. Dubai, which produces very little oil, must purchase oil products such as diesel at international prices to satisfy domestic demand.

Abu Dhabi produces the fuels it needs at Adnoc-owned refineries, which receive domestic crude free of charge from the company’s oil production operations. In 2011, the Dubai government held back plans to raise fuel prices further due to concerns that such moves might stoke political unrest. That has left Enoc with rising bills for imported fuel, resulting in negative sales margins. The company has responded to its cash shortage by restricting supplies of gasoline and diesel, according to analysts and certain company employees who have spoken on condition of anonymity.

Enoc has officially blamed the fuel shortages at stations it operates in Dubai and the neighbouring emirate of Sharjah on “technical” issues. The diesel shortage, which has proved just as strong an incentive for “smuggling” as the earlier price differentials, has potential repercussions beyond the transportation sector.